Justice Dept. Settles with Three Publishers, Continues Action Against Apple and Two Others

WASHINGTON, DC—April 11, 2012—The Department of Justice announced it has reached a settlement with three of the largest book publishers in the United States—Hachette Book Group (USA), HarperCollins Publishers and Simon & Schuster—and will continue to litigate against Apple Inc. and two other publishers—Holtzbrinck Publishers, which does business as Macmillan, and Penguin Group (USA)—for conspiring to end eBook retailers’ freedom to compete on price, take control of pricing from eBook retailers and substantially increase the prices that consumers pay for eBooks.

The department said that the publishers prevented retail price competition resulting in consumers paying millions of dollars more for their eBooks.

The civil antitrust lawsuit was filed in U.S. District Court for the Southern District of New York against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster. At the same time, the department filed a proposed settlement that, if approved by the court, would resolve the department’s antitrust concerns with Hachette, HarperCollins and Simon & Schuster, and would require the companies to grant retailers–such as Amazon and Barnes & Noble–the freedom to reduce the prices of their eBook titles.

“As a result of this alleged conspiracy, we believe that consumers paid millions of dollars more for some of the most popular titles,” said Attorney General Eric Holder. “We allege that executives at the highest levels of these companies–concerned that eBook sellers had reduced prices–worked together to eliminate competition among stores selling eBooks, ultimately increasing prices for consumers.”

“With today’s lawsuit, we are sending a clear message that competitors, even in rapidly evolving technology industries, cannot conspire to raise prices,” said Acting Assistant Attorney General Sharis A. Pozen in charge of the Department of Justice’s Antitrust Division. “We want to undo the harm caused by the companies’ anticompetitive conduct and restore retail price competition so that consumers can pay lower prices for their eBooks.”

The department’s Antitrust Division and the European Commission cooperated closely with each other throughout the course of their respective investigations, with frequent contact between the investigative staffs and the senior officials of the two agencies. The department also worked closely with the states of Connecticut and Texas to uncover the publishers’ illegal conspiracy.

According to the complaint, the five publishers and Apple were unhappy that competition among eBook sellers had reduced eBook prices and the retail profit margins of the book sellers to levels they thought were too low. To address these concerns, they worked together to enter into contracts that eliminated price competition among bookstores selling eBooks, substantially increasing prices paid by consumers.

First, the only monopolies that exist over any substantial period of time have been sponsored by government, e.g. Ma Bell, cable TV, etc. So I dismiss prima facia there is any harmful monopolistic practices by any of the parties named in the suit. I also reject that "lower consumer prices" of eBooks, the goal of the DOJ, is necessarily a public good. Higher "producer" prices benefits publishers/authors/distributors. Under what part of our US Constitution gives government the power or right to interfere in the marketplace to aid consumers over producers?

We have far more to fear from the unforeseen costs and consequences of government meddling than any temporary pricing advantage a private company may enjoy.

That said, given that each publisher is free to set prices under the agency model, how can they prove collusion? In fact, it is Amazon’s model that is dictating prices by varying the commission they pay. And Apple is not the only seller of eBooks using the agency model, nor do they have a monopoly on the different devices which can read eBooks.

I believe the ultimate effect of the pusillanimous capitulation of the big NY publishers to the government will be the emergence of publishers selling eBooks direct to consumers off their own website — i.e. Pottermore. I might add MyTabletBooks.com provides publishers a vehicle to begin selling direct immediately.